Jobs report stunner

The unemployment rate falls to 7.8 percent. Americans are going back to work

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October 5, 2012 5:10PM (UTC)

In a remarkable development sure to give the debate-debacle battered Obama campaign a big morale boost, the government reported that the unemployment rate fell to 7.8 percent in September -- its lowest mark since January 2009. The government also reported that the economy added 114,000 jobs, and revised the jobs numbers for July and August upward.

The 114,000 number nailed the pre-report economist consensus, and normally would not be considered enough to justify such a sharp drop in the unemployment rate. In some quarters, the news was immediately greeted with suspicion. Former GE CEO Jack Welch, for example, immediately tweeted: "Unbelievable jobs numbers ... these Chicago guys will do anything ... can't debate so change numbers."

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But the mystery clears up when you look closer. The monthly government labor report is actually based on two separate surveys: the household survey, which generates the unemployment rate, and the establishment survey, which generates the gross jobs totals. In the past few years, sharp drops in the unemployment rate have often been explained by household survey numbers reporting that Americans have simply given up looking for jobs, thus shrinking the overall size of the labor force. That's generally not a sign of a healthy economy.

This time around, however, the household survey indicated that total employment rose by a whopping 873,000 in September. The employment to population ratio jumped by 0.4 percentage points -- which might not sound like much, but in an economy the size of the U.S. is actually massive -- and hugely encouraging. The household survey results explain the atypical glee with which some economists who follow the ups and downs of the labor report greeted the new numbers. (Witness Justin Wolfers' tweet: "UNEMPLOYMENT FALLS TO 7.8%!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!")

Average hours worked per week and hourly wages also both rose -- two other important indicators of a healthier labor market.

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All the usual caveats apply. The monthly jobs numbers are subject to a lot of revision. Manufacturing job totals dropped in September, confirming the summer-long slowdown in that sector. And after four years, getting the unemployment rate back to where it was when Obama was inaugurated is hardly the kind of mark to boast about.

But if you're still wondering why Americans seem to be feeling more confident about the economy, or why they've been rushing to buy new cars, the September labor report offers a big clue -- Americans are going back to work.